Silver as an investment

Turkish Lira Carnage Continues – World’s Most Volatile Currency Crashes Most Since Lehman

The Lira – officially the world's most volatile currency – has lost 11% of its value since the start of 2017 (down 8 of the last 9 days against the USD).

 

In fact, the lira headed for its biggest five-day loss since Lehman (Oct 2008) after a pledge by Turkey’s central bank to support the currency failed to convince investors.

 

As we noted previously, as Turkey deals with rising domestic instability (and Erdogan's push for total rule), the Lira has become the world's most unstable currency

As we noted earlier, market focus has turned on the lira as a result of Turkey's large external borrowing requirement which makes its currency one of the most vulnerable currencies to tightening by the Fed.

Not helping matters is that Turkish residents have been flocking to the stability of hard currencies, the opposite of what President Recep Tayyip Erdogan has been urging. As the following Bloomberg chart shows, deposits in foreign exchange for individuals and companies excluding banks rose for a third week, signaling a lack of confidence in the lira. It’s the biggest loser among world currencies so far in 2017.

 

 

Additionally, Turkish economic growth has remained sluggish and inflation is rising, yet the central bank has been under pressure from President Tayyip Erdogan not to hike interest rates. A series of gun and bomb attacks have heightened security concerns. On Tuesday the Turkish parliament voted to press on with a debate about constitutional reform to strengthen the powers of President Tayyip Erdogan.

 

"Nobody wants to be the last one in there and everyone is running for the door. There are no signs from the authorities that they are taking it seriously," said Jakob Christensen, head of EM research at Danske Bank. Christensen said the risk of further attacks was undermining the tourist sector, which is vital for the economy and balance of payments.

It;s not just the currency that is in trouble though. The yield on the nation’s 10-year debt surged 45 basis points. The monetary authority said yesterday that it is monitoring “excessive volatility” in the markets and pledged to tackle “unhealthy price formations inconsistent with economic fundamentals.”